CORPORATE OFFICE PROPERTIES TRUST Results for 3Q 2020 October - - PowerPoint PPT Presentation

The Preferred Provider of Mission Critical Real Estate Solutions

CORPORATE OFFICE PROPERTIES TRUST

Results for 3Q 2020

October 29, 2020

2

Table of Contents

Safe Harbor

Unless otherwise noted, information in this presentation represents the Company’s consolidated portfolio as of or for the quarter ended September 30, 2020.

This presentation may contain “forward-looking” statements, as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that are based on the Company’s current expectations, estimates and projections about future events and financial trends affecting the Company. These statements may include, without limitation, statements regarding: our belief that we are well- positioned to maintain relative normal operations through the COVID-19 crisis; our expectations as to renewal leasing, rent relief requests, development leasing and development projects; our liquidity situation; and

• ur dividend. Forward-looking statements are inherently subject to risks

and uncertainties, many of which the Company cannot predict with accuracy and some of which the Company might not even anticipate. Although the Company believes that expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, the Company can give no assurance that these expectations, estimates and projections will be

• achieved. Future events and actual results may differ materially from

those discussed in the forward-looking statements and the Company undertakes no obligation to update or supplement any forward-looking statements. The areas of risk that may affect these expectations, estimates and projections include, but are not limited to, those risks described in Item 1A

• f the Company’s Annual Report on Form 10-K for the year ended

December 31, 2019 and subsequent Quarterly Reports on Form 10-Q.

I. Results for 3Q 2020…............................Page 3 II. Factors Supporting Growth……………Page 6 III. Minimal Impact from COVID-19……...Page 17 IV. 2020 Guidance………....………..……...Page 25 V. Appendices……………………………...Page 29

A. Definitions & Glossary B. Reconciliations

3

I.

Results for 4Q & FY 2018

I.

Results for 3Q 2020

100 Secured Gateway, Huntsville, AL

4

3Q 2020 Recap

Strong 3Q Results; Minimal Impact from COVID-19 Shutdowns Incurred

1. Annualized rental revenue (“ARR”); rent collections data are updated through October 29, 2020. 2. Net = total monthly billings adjusted to exclude rent relief granted to tenants. 3. See Slide 23 for detail.

Solid Leasing

› 1.1 million SF executed in 3Q › 2.7 million SF executed through 9/30/20

Core Portfolio 94.0% occupied, 94.6% leased 1.6 million SF Under Development

› 84% leased

Ample Liquidity

› $612 million of liquidity3 to complete the remaining $241 million of development commitments › Expect to raise an additional ~$165 million of equity proceeds through joint venture sales before year end

Minimal Impact from COVID-19

› Rent relief granted totals <1.0%

• f ARR1

› Extremely strong rent collections2:

› 2Q20 – 99.7% (100% net)

▪ July – 99.6% (100% net) ▪ August – 99.6% (100% net) ▪ September – 99.5% (99.9% net)

› 3Q20 – 99.6% (100% net)

▪ October – 98.8% (99.3% net)

5

3Q20 Guidance Actual FFOPS* $0.51 – $0.53 $0.54 Same-Property: ▪ Occupancy 92 – 93% 92.5% ▪ Cash NOI Growth (1%) – 0% (0.2%) Tenant Retention 80 – 85%** 89.0% for 3Q 84.3% YTD Development Spend

• ~$100 mm

Development Leasing Achieved: ▪ 1Q ▪ 2Q ▪ 3Q

• 276,000 SF

244,000 SF Total To-Date

• 520,000 SF

3Q20 Results

* FFOPS = diluted funds from operations per share, as adjusted for comparability. ** Tenant retention guidance is for the full year. Management has increased this range from the original range of 70–75%.

6

I.

Results for 4Q & FY 2018

6708 Alexander Bell Drive, Columbia, MD

II.

Factors Supporting Growth

7

Healthy DoD Spending Levels

»

Bi-partisan agreement for FY20 & FY21 Budgets eliminated sequestration threat

»

Budget Control Act of 2011 sunsets after FY21

»

HASC voted in favor of FY 2021 NDAA 295-to-125; SASC voted 86-to-14

»

FY 2015–FY 2020, DoD’s Base Budget has grown at a compound annual rate of 5%

»

As expected, Congress passed a continuing resolution through December 11, 2020; expected to appropriate the FY 2021 budget after the election

DoD’s Discretionary Budget Authority (“Base Budget”)*

Current dollars, in billions. Sources: Historical data through FY 2016 are pulled from Tables 1-9 and 2-1 of the National Defense Budget Estimates ("Green Books") for FY 2017 or earlier; data for FY 2017 through FY 2019 are pulled from Tables 1-2 and 2-1 of the FY 2020 Green Book; Capital Alpha Partners; COPT’s IR Department. † DoD base budget (051) numbers exclude funding for overseas contingency operations ("OCO"), Atomic Energy Defense Activities (053), Other Defense-Related Activities (054), and mandatory spending. * FY 2017 includes $8.25 billion of "OCO for base budget purposes." Source: CRS report on the final authorizations. ** FY 2018 includes $5.8 billion of supplemental authorizations for Missile Defense. ‡ Estimated, using the 2020 DoD Appropriations Act and the 2020 Military Construction, Veterans Affairs, and Related Agencies Appropriations Act.

8

Mandate to Restore & Fund U.S. Military

» A 2018 Pentagon Study reported that the DoD funding deficit created by the

Budget Control Act of 2011 and the multi-year failure to provide timely appropriations had eroded U.S. Military power “to a dangerous degree,” and provided the imperative to correct it

Prior Spending Deficit in Base Budget (050)

Source: National Defense Strategy Commission’s Providing for the Common Defense (2018): https://www.usip.org/publications/2018/11/providing-common-defense

9

Growth from Development Leasing

* As of October 29, 2020. Note: COPT’s Development Leasing Pipeline formerly was called its Shadow Development Pipeline.

Development Leasing

»

After record year in 2019, demand for new facilities remains strong

»

Major lease executions to-date include three defense contractor build-to- suits and a large U.S. Government lease at Redstone Gateway

»

Our Development Leasing Pipeline of 2.4 million SF* supports future growth and

• ur goal of executing

1 million SF of development leasing in 2020

Robust Development Leasing Pipeline bodes well for future development leasing & NOI growth

500,000 1,000,000 1,500,000 2,000,000 Actual SF Forecasted Initial Goal

10

Highly Leased Developments Drive NOI Growth

» Between 2013–3Q20,

we placed 7.8 million SF into service that, on average, were 96% leased

»

This includes 1.2 million SF placed in service during 2020 that were 99% leased

» During 4Q20, we expect

to place another 540,000 SF in service that are 100% leased, contributing to FFO growth into 2021/2022 Square Feet of Development Placed Into Service*

* As of September 30, 2020.

0% 20% 40% 60% 80% 100%

• 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 2013 2014 2015 2016 2017 2018 2019 2020 E SF PIS Forecasted % Leased 973,000 SF PIS annually, 96% leased

11

Vacancy Leasing Tempered by Shutdowns

» Strong Vacancy Leasing of 143,000 SF in 1Q20 was 13% higher than 1Q19 results » 2Q & 3Q20 Vacancy Leasing volumes totaling 131,000 SF were light due to pandemic

shutdowns affecting tenant decisions and brokerage firms

» Leasing Activity Ratio† is rebuilding; expect solid volume in 4Q20 and momentum going

into 2021

† Leasing Activity Ratio = total vacant SF divided by total prospects * Percent occupied & leased statistics are for COPT’s core portfolio.

Vacancy Leasing in COPT’s Operating Portfolio*

50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% 50 100 150 200 250 300 350

Core Portfolio % Leased and Occupied Square Feet of Vacancy Leased (000s)

Defense/IT Regional Office* % Leased % Occ

2016 2017 2018 2019 2020

12

Tenant co-investment creates “stickiness” and supports COPT’s sector-leading tenant retention rates and low renewal CapX

Strong Tenant Retention

» Proven track record of

strong tenant retention rates, averaging:

» 73% between 2010−2019 » 78% between 2016−2019

» In April, increased 2020

tenant retention guidance to 75–80% and again in July, to new range of 80–85%

» FFO & AFFO benefits of

high renewal rates more than offset impact of cash rent roll downs

Source: Company Supplemental Information Reports * 20-year record renewal rate of 80% was established in 2017.

COPT’s Renewal Rates Since 2000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

» Expect renewal rate of 80–85% in 2020 to set 20-year record*

13

Low Leasing CapX on Renewals

» During 2019, we maintained our track record of low leasing costs / SF / year

• n renewing leases

» During the first nine months of 2020, our 84% renewal rate exceeded

internal expectations and our CapX / SF / year of term was only $2.05

2019 Leasing CapX per SF per Year of Term* ─ Renewing Leases

* Average for the trailing four quarters ended December 31, 2019

• a. Office portfolio only.

The following office REITs do not disclose enough information to be included in this analysis: BDN, DEA, FSP, HIW, KRC, PGRE

$9.52 $7.54 $7.29 $6.24 $5.91 $5.41 $5.38 $5.10 $4.88 $4.82 $2.53 $2.25 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 BXP CXP JBGS CUZ PDM CLI WRE (a) DEI SLG (a) HPP OFC OPI

14

Large Leases Update

» 2020 Large Leases

» 1H20 renewals (1.1 million SF) included one

contractor and one USG lease

» As expected, tenant at 6721 Columbia Gateway

Drive did not renew on 4/30

▪ One floor (31,000 SF) already back-filled

» Two USG renewals in San Antonio, TX are in

process

» 2021–Zero Large Lease Exposure

» During 2020, we executed early renewals for all

four Large Leases previously scheduled to expire in 2021:

▪ Boeing executed early renewals on all three full-

building leases at Redstone Gateway and Booz Allen Hamilton executed an early renewal on its 130,000 SF lease at The National Business Park

Continued Strong Retention of Large Tenants*

2020 Large Leases # Leases SF Actual or Expected % Renewal ▪ USG:

▫ Executed ▫ In Process

1 2 125,000 250,000 100% 100% ▪ Contractors:

▫ Executed ▫ Non-Renewal 1 1

157,000 131,000 100% 0% ▪ Commercial

• 5

663,000 80% 2021 Large Leases # Leases SF Actual % Renewal ▪ USG

• ▪ Contractors

4

493,000 100% ▪ Commercial

• 4

493,000 100%

* Large lease is defined as 100,000 SF or more.

15

Manageable Future Lease Expirations

» Concentration of expirations at mission critical Defense/IT Locations

mitigates rollover risk (Barriers to Exit)

» As of September 30, 2020, less than 7% of SF and only 7.7% of core

ARR scheduled to expire in 2021

Based on the Company's core portfolio. 2017─2019 SF represent the total expiring SF for those time periods, as reported in the 4Q supplemental packages. The percentages above the bars are the percent of leased SF scheduled to expire; the dollar amounts in the boxes are the associated annualized rental revenues. † Four large leases with defense contractors scheduled to expire in 2021 early renewed during 3Q20 (493,000 total SF).

Scheduled Office Lease Maturities

500 1,000 1,500 2,000 2,500 3,000 3,500 2017 A 2018 A 2019 A 2020 2021 2022 2023 2024

Square Feet Expiring (000s)

SF Renewed Defense/IT SF Regional Office SF

6.8% 11.4% 9.9% 13.5% 2.1%

$17.3 $41.2 $68.5 $65.0 $70.1

†

16

Strong Balance Sheet & Liquidity

»

2020 guidance now includes raising ~$165 million of equity in 4Q through selling joint venture interests; reduces Debt/EBITDA to 6.2x–6.4x by year-end

▪

Larger sale lowers risk to future equity funding and maintains strong balance sheet

▪

Less than 1-cent dilution to internal 2021 forecast

»

Operating at conservative leverage levels

»

$612 million of liquidity** to complete the remaining $241 million of development commitments

* The Company launched its Strategic Reallocation Plan (“SRP”) in April 2011 and completed its programmatic selling in October 2017. ** Excludes approximately $165 million of equity proceeds the Company expects to raise from joint venturing data center shells in 4Q20. † Net debt to in-place adjusted EBITDA ratio. †† Net debt plus preferred equity to in-place adjusted EBITDA ratio.

Current Status Fitch Moody’s S&P ▪ Rating BBB- Baa3 BBB- ▪ Outlook Stable Stable Stable

4.0 x 5.0 x 6.0 x 7.0 x 8.0 x 9.0 x 10.0 x 11.0 x Debt/EBITDA† (D + P)/EBITDA†† 7.0 x 7.7 x 8.3 x 9.2 x 9.8 x

9.0 x

6.3 x

8.4 x 7.1 x 6.8 x 6.2 x 6.5 x

7.2 x

5.7 x

6.1 x 6.0 x ~ 6.0x 6.1 x 6.8 x

Maintaining Our Strong Balance Sheet

17

I.

Results for 4Q & FY 2018

• III. Minimal Impact from COVID-19

Rendering of 4600 River Road, College Park, MD

18

COPT Virtually Unaffected by Shutdowns

Durable Revenues; Rent Collections Minimally Impacted

› Rent relief granted totals <1.0%

• f ARR1

› Extremely strong rent collections2:

2Q20 – 99.7% (100% net) 3Q20 – 99.6% (100% net) October3 – 98.8% (99.3% net)

1. Annualized rental revenue (“ARR”). 2. Net = total monthly billings adjusted to exclude rent relief granted. 3. Reflects rents collected through October 29th.

Resilient Operations

› 1Q, 2Q & 3Q20 results beat

guidance › All office & data centers open & functioning › Majority of COPT tenants deemed essential

Dividend Well-Covered Strong Balance Sheet with Ample Liquidity

Leasing:

› Developments Unaffected › Renewals at Record Levels › Vacancy Leasing Tempered by Shutdowns; Now Rebuilding

Development Projects On-Track for Timely Deliveries

19

1Q20 2Q20 3Q20

Guidance Actual Guidance Actual Guidance Actual FFOPS* $0.47 – $0.49 $0.51 $0.48 – $0.50 $0.51 $0.51 – $0.53 $0.54 Same- Property:

▪ Occupancy

91.5% – 92.5% 92.7% 91% – 92% 92.3% 92 – 93% 92.5%

▪ Cash NOI Growth

• 5.0%

(3%) – (1.5%) 1.7% (1%) – 0% (0.2%) Tenant Retention** 70% – 75% 89% 75% – 80% 76% in 2Q 81% for 1H 80 – 85%** 89.0% in 3Q 84.3% YTD† Development Spend

• ~$100 mm
• ~$100 mm
• ~$100 mm

Development Leasing Achieved:

▪ 1Q ▪ 2Q ▪ 3Q

Total to-date ‡

• ‡

‡

• 276,000 SF

‡ ‡ ‡

• 276,000 SF

244,000 SF 520,000 SF

Nine-Month Results

* FFOPS = diluted funds from operations per share, as adjusted for comparability. ** Tenant retention guidance was for the full year and as of April 30, 2020. Effective July 30, management increased this range for the full year to 80%–85%. ‡ The Company’s goal for 2020 is to execute 1 million SF of development leasing.

COPT has outperformed throughout pandemic

20

Collections Update

» Rent relief granted to-date totals ~0.9% of ARR

» 0.2% of ARR in abatements, 0.4% in deferred rent, and 0.3% in rent reserves

and write-offs of uncollectible rents

» No relief granted to U.S. Government tenants or major defense contractors » Most relief granted to food/amenity tenants in our office parks

» Rent collections minimally impacted by shutdowns:

Total Tenant Rent Relief Impact <1.0% of ARR

* Net = total monthly billings adjusted to exclude rent relief granted. † October data reflects rents collected through October 29th.

Collections Month Gross Net* 2Q20 99.7% 100% 3Q20 99.6% 100% October† 98.8% 99.3%

21

Vacancy Leasing Update

» Strong achievement through April; 1Q20 volume

exceeded 1Q19 by 13%

» Tenant broker shutdowns late March through late June

precluded new showings

» 2Q and 3Q20 volumes of 70,000 SF and 61,000 SF, respectively, were softer than original

forecast

» Vacancy Leasing activity declined during the shutdowns, recovered to pre-pandemic levels

during September, and points to solid future leasing volumes

» Interest savings from senior notes tender offer and new

issuance in September provide cushion to absorb impact of Vacancy Leasing delays on 2021 results Solid Demand; Timing Less Certain

22

Development Leasing Update

» Nearly all discussions & negotiations commenced before

COVID-19 have been executed or continue to advance

» Expected to meet or surpass goal of executing 1 million SF

• f Development Leasing in 2020

» 520,000 SF of development leasing completed in 2020* includes:

▪ 3 defense contractor build-to-suits totaling 260,000 SF ▪ A large U.S. Government lease at 100 Secured Gateway ▪ 3 expansions of existing data center shells totaling 42,000 SF ▪ ~35% of 2020 development leasing has been with the U.S. Government

» Pursuing 2.4† million SF of opportunities in Development

Leasing Pipeline Largely Unaffected by Shutdowns and Restrictions

* Development leasing to-date, as of October 7, 2020. † As of October 29, 2020.

23

Balance Sheet

» We invested approximately $300 million in developments

during the first nine months of 2020, leaving $50–$75 million to fund during 4Q20

» $612 million of liquidity as follows: » Two JV transactions expected to close before year-end are

• n-track to generate an additional $165 million of equity

proceeds

Ample liquidity to bridge an extended crisis

Dollars are in millions. * At September 30, 2020.

Cash on-hand* $11.5 Capacity on 2100 L Street construction loan* 37.4 Line of credit availability* 743.0

– October 19th redemption of 2021 Notes

(180.0) Liquidity* $611.9

24

Dividend is Well-Covered

» Our $0.275/share quarterly dividend ($1.10/share

annualized) is well-covered by operations

» Solid AFFO Payout Ratio:

» 2020 plan incorporates a dividend/AFFO payout ratio of 65–70%, leaving

30–35% to invest in development pipeline

» Attractive 5% yield*

* As of the closing price on October 29, 2020.

25

I.

Results for 4Q & FY 2018

8000 Rideout Road, Huntsville, AL

• IV. 2020 Updated Guidance

26

2020 Guidance Highlights

» We are increasing the mid-point of full year FFO per share*

guidance by 2-cents, to $2.09

» New mid-point represents 3% growth 2019 and is 1-cent higher than original

guidance

» Same-property:

» Cash NOI to increase 1–1.5% for the full year » Occupancy of 92–92.5% at year-end reflects impact of removing eight, 100%

• ccupied data centers shells from the same-property pool in 4Q20, impacting year-

end occupancy by approximately 60 basis points

» Invest $350–$375 million in developments throughout the year » Place 1.75 million SF of developments into service that we expect to

be fully leased

» Includes the 1.2 million SF placed into service during first nine months of the year

* FFOPS, as adjusted for comparability.

27

2020 Guidance–Summary of Assumptions

Updated Full Year 2020 Guidance 4Q20 Guidance Diluted EPS $0.77 – $0.79 $0.63 – $0.65 FFOPS1 $2.08 – $2.10 $0.52 – $0.54 Portfolio Metrics

▪ Same-Property:

» Cash NOI Growth » Occupancy (End of Period) – Pre-JV’s » Occupancy (End of Period) – Post-JV’s

1.0% – 1.5% 92.5% – 93% 92% – 92.5% (2%) – 0% 92.5% – 93% 92% – 92.5% ▪ Diluted AFFO Payout Ratio 65% – 70% *

Leasing

▪ Expirations2 397,000 SF (3.2%)remaining 397,000 SF (3.2%) ▪ Tenant Retention 80% – 85% * ▪ Change in Cash Rents (2.5%) – (1.5%) *

Investment Activity ($mm)

▪ Development $350 – $375 million $50 – $75 million ▪ Acquisitions N/A N/A ▪ Dispositions (Equity) $165 million3 $165 million3

1. FFOPS, as adjusted for comparability. Nareit FFOPS is forecasted to be $1.44–$1.46 and includes a 10-cent allocation to noncontrolling interests and a 54-cent loss on derivative financial instruments and the early extinguishment of debt. 2. SF expiring, plus the percent of core annualized rental revenues in parenthesis. 3. Equity proceeds the Company expects to raise from selling JV interests in two wholly-owned data center shells and six

• thers currently owned in another joint venture.

* Incorporated in full-year guidance.

28

U.S. Government moves deliberately & slowly – and is essential

COVID-19 pandemic’s duration unknown; unforeseen impacts possible Healthy defense spending environment & 12–18 month demand tail support new leasing

• pportunities

› Occupancy gains › New development DoD Budget:

› Prompt Payment Act ensures U.S. Government pays rent, even during federal shutdowns › Continuing Resolutions in any budget year may delay lease executions on contract contingent deals

Lease-up 310 NBP (135,500 SF in 4 floors) Modest equity raise included in 2020 plan › Expect to raise ~$165 million of

equity proceeds during 4Q20 by selling JV interests in data shells › Debt/EBITDA ratio of 6.2x–6.4x at year-end

Reminders Risks Opportunities

Positioned for very healthy FFO growth of 3–6% in 2021 Ultimate timing

• f lease executions

& commencements DC-6

› 11.25 MW anchor tenant renewal in final negotiations

29

• V. Appendices

A.

Definitions & Glossary

B.

Reconciliations

30

• A. Definitions & Glossary

» Acquisition costs – transaction costs expensed in connection with executed or anticipated acquisitions of operating

properties.

» Adjusted Book – total assets presented on our consolidated balance sheet, net of lease liabilities associated with

property right-of-use assets, and excluding the effect of cash and cash equivalents, accumulated depreciation on real estate properties, accumulated amortization of intangible assets on real estate acquisitions, accumulated amortization of deferred leasing costs, disposed properties included in assets held for sale, unconsolidated real estate joint ventures cash and cash equivalents, liabilities, and accumulated depreciation and amortization (of real estate intangibles and deferred leasing costs) allocable to our ownership interest in the joint ventures and the effect of properties serving as collateral for debt in default that we extinguished (or intend to extinguish) via conveyance of such properties.

» Adjusted EBITDA – net income (loss) adjusted for the effects of interest expense, depreciation and amortization, gain

• n sales and impairment losses of real estate, gain or loss on early extinguishment of debt, net gain (loss) on other

investments, credit loss expense or recoveries, operating property acquisition costs, gain (loss) on interest rate derivatives, income taxes, business development expenses, demolition costs on redevelopment and nonrecurring improvements, executive transition costs, certain other expenses that we believe are not closely correlated with our

• perating performance, and excluding the effect of properties that served as collateral for debt in default that we

extinguished via conveyance of such properties. Adjusted EBITDA also includes adjustments to net income for the effects of the items noted above pertaining to unconsolidated real estate JVs that were allocable to our ownership interest in the JV.

» Annualized Rental Revenue – the monthly contractual base rent as of the reporting date multiplied by 12, plus the

estimated annualized expense reimbursements under existing leases for occupied space. With regard to properties

• wned through unconsolidated real estate joint ventures, we include the portion of Annualized Rental Revenue allocable

to COPT’s ownership interest.

» ATFP – Anti-terrorism force protection. » Baltimore/Washington Region (or B/W Region) – includes counties that comprise the Fort Meade/Baltimore

Washington Corridor. As of September 30, 2020, 88 of COPT’s properties were located within this defined region. Please refer to page 11 of COPT’s Supplemental Information package dated September 30, 2020 for additional detail.

31

• A. Definitions & Glossary

» Basic FFO available to common share and common unit holders (“Basic FFO”) – FFO adjusted to subtract

(1) preferred share dividends, (2) income attributable to non-controlling interests through ownership of preferred units in Corporate Office Properties, L.P. (the “Operating Partnership”) or interests in other consolidated entities not owned by us, (3) depreciation and amortization allocable to non-controlling interests in other consolidated entities, (4) Basic FFO allocable to share-based compensation awards, and (5) issuance costs associated with redeemed preferred

• shares. With these adjustments, Basic FFO represents FFO available to common shareholders and holders of common

units in the Operating Partnership (“common units”). Common units are substantially similar to our common shares of beneficial interest (“common shares”) and are exchangeable into common shares, subject to certain conditions.

» BRAC – Base Realignment and Closure Commission of the United States Congress, the most recent of which

Congress established in 2005 to ensure the integrity of the base closure and realignment process. The Commission provided an objective, non-partisan, and independent review and analysis of the list of military installation recommendations issued by the Department of Defense (“DoD”) on May 13, 2005. The Commission's mission was to assess whether the DoD recommendations substantially deviated from the Congressional criteria used to evaluate each military base. While giving priority to the criteria of military value, the Commission took into account the human impact of the base closures and considered the possible economic, environmental, and other effects on the surrounding communities.

» C4ISR – Command, Control, Communications, Computers, Intelligence, Surveillance &Reconnaissance » Cash net operating income (“Cash NOI”) – NOI from real estate operations adjusted to eliminate the effects of:

straight-line rental adjustments, amortization of tenant incentives, amortization of intangibles and other assets included in FFO and NOI, lease termination fees from tenants to terminate their lease obligations prior to the end of the agreed upon lease terms, and rental revenue recognized under GAAP resulting from landlord assets and lease incentives funded by tenants. Cash NOI also includes adjustments to NOI from real estate operations for the effects of the items noted above pertaining to unconsolidated real estate JVs that were allocable to our ownership interest in the JVs. Under GAAP, rental revenue is recognized evenly over the term of tenant leases (through straight-line rental adjustments and amortization of tenant incentives), which, given the long term nature of our leases, does not align with the economics of when tenant payments are due to us under the arrangements. Also under GAAP, when a property is acquired, we allocate the acquisition to certain intangible components, which are then amortized into NOI over their estimated lives, even though the resulting revenue adjustments are not reflective of our lease economics. In addition, revenue from lease termination fees and tenant-funded landlord improvements, absent an adjustment from us, would result in large

• ne-time lump sum amounts in Cash NOI that we do not believe are reflective of a property’s long-term value.

32

• A. Definitions & Glossary

» Core Portfolio – Defense/IT Locations and Regional Office properties. » Debt/Total Market Capitalization – gross debt, divided by our total market capitalization. » Defense/IT Locations – properties in locations that support the United States Government and its contractors, most of

whom are engaged in national security, defense, and information technology (“IT”) related activities servicing what we believe are growing, durable priority missions.

» Development profit or yield – calculated as cash NOI divided by the estimated total investment, before the impact of

cumulative real estate impairment losses.

» Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”) –

Diluted FFO, as adjusted for comparability, adjusted for the following: (1) the elimination of the effect of (a) noncash rental revenues and property operating expenses (comprised of straight-line rental adjustments, which includes the amortization

• f recurring tenant incentives, and amortization of acquisition intangibles included in FFO and NOI, both of which are

described under “Cash NOI” above), (b) share-based compensation, net of amounts capitalized, (c) amortization of deferred financing costs, (d) amortization of debt discounts and premiums and (e) amortization of settlements of debt hedges; and (2) replacement capital expenditures (defined below). Diluted AFFO also includes adjustments to Diluted FFO, as adjusted for comparability for the effects of the items noted above pertaining to unconsolidated real estate JVs that were allocable to our ownership interest in the JVs.

» Diluted FFO available to common share and common unit holders (“Diluted FFO”) – Basic FFO adjusted to add

back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares. The computation of Diluted FFO assumes the conversion of common units but does not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase Diluted FFO per share in a given period.

» Diluted FFO available to common share and common unit holders, as adjusted for comparability (“Diluted FFO,

as adjusted for comparability”) – Diluted FFO or FFO adjusted to exclude: operating property acquisition costs; gain or loss on early extinguishment of debt; FFO associated with properties that secured non-recourse debt on which we defaulted and, subsequently, extinguished via conveyance of such properties (including property NOI, interest expense and gains on debt extinguishment); loss on interest rate derivatives; demolition costs on redevelopment and nonrecurring improvements; executive transition costs; accounting charges for original issuance costs associated with redeemed preferred shares; allocations of FFO to holders of noncontrolling interests resulting from capital events; and certain other expenses that we believe are not closely correlated with our operating performance. Diluted FFO, as adjusted for comparability also includes adjustments to Diluted FFO for the effects of the items noted above pertaining to unconsolidated real estate JVs that were allocable to our ownership interest in the JVs.

33

• A. Definitions & Glossary

» Diluted FFO per share – Defined as (1) Diluted FFO divided by (2) the sum of the (a) weighted average common shares

• utstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average

number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. The computation of Diluted FFO per share assumes the conversion of common units but does not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase Diluted FFO per share in a given period.

» Diluted FFO per share, as adjusted for comparability – Defined as (1) Diluted FFO available to common share and

common unit holders, as adjusted for comparability divided by (2) the sum of the (a) weighted average common shares

• utstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average

number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. The computation of this measure assumes the conversion of common units but does not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase the per share measure in a given period.

» DISA – Defense Information Systems Agency » EBITDA – see Adjusted EBITDA » EUL – Enhanced Use Lease whereby the DoD grants a lease interest to a private developer in exchange for rent that the

DoD can use to improve the related defense installation.

» Funds from operations (“FFO” or “FFO per Nareit”) – Defined as net income computed using GAAP, excluding gains

• n sales and impairment losses of real estate (net of associated income tax) and real estate-related depreciation and
• amortization. FFO also includes adjustments to net income for the effects of the items noted above pertaining to

unconsolidated real estate JVs that were allocable to our ownership interest in the JVs. We believe that we use the National Association of Real Estate Investment Trust’s (“Nareit”) definition of FFO, although others may interpret the definition differently and, accordingly, our presentation of FFO may differ from those of other REITs.

» Gross Debt – Defined as total consolidated outstanding debt, which is debt reported per our balance sheet adjusted to

exclude net discounts and premiums and deferred financing costs, as further adjusted to include outstanding debt of unconsolidated real estate JVs that were allocable to our ownership interest in the JVs.

34

• A. Definitions & Glossary

» GSA – United States General Services Administration. In July 1949, President Harry Truman established the GSA to

streamline the administrative work of the federal government. The GSA’s acquisition solutions supplies federal purchasers with cost-effective high-quality products and services from commercial vendors. GSA provides workplaces for federal employees, and oversees the preservation of historic federal properties. Its policies covering travel, property and management practices promote efficient government operations.

» In-place adjusted EBITDA – Defined as Adjusted EBITDA, as further adjusted for: (1) the removal of NOI pertaining to

properties in the quarterly periods in which such properties were disposed or removed from service; (2) the addition of pro forma adjustments to NOI for (a) properties acquired, placed in service or expanded upon subsequent to the commencement of a quarter made in order to reflect a full quarter of ownership/operations and (b) significant mid-quarter

• ccupancy changes associated with properties recently placed in service with no occupancy; and (3) certain adjustments

to deferred rental revenue associated with changes in our assessment of collectability that we believe are not closely correlated with our operating performance. The measure also includes adjustments to Adjusted EBITDA for the effects of the items noted above pertaining to unconsolidated real estate JVs that were allocable to our ownership interest in the JVs.

» Interest Duration – The length of time for which an interest rate on debt is fixed. » Market capitalization – sum of (1) consolidated outstanding debt, excluding discounts, premiums and deferred financing

costs, (2) liquidation value of preferred shares and preferred units in our operating partnership and (3) the product of the closing price of our common shares on the NYSE and the sum of (a) common shares outstanding and (b) common units

• utstanding.

» NGA – National Geospatial Intelligence Agency » Net debt – gross debt (total outstanding debt reported per our balance sheet as adjusted to exclude net discounts and

premiums and deferred financing costs), as adjusted to subtract cash and cash equivalents as of the end of the period and debt in default that was extinguished via conveyance of properties. The measure also includes adjustments to Gross debt for the effects of the items noted above pertaining to unconsolidated real estate JVs that were allocable to our

• wnership interest in the JVs.

» Net debt to adjusted book and Net debt plus preferred equity to Adjusted book – these measures divide either Net

debt or Net debt plus preferred equity by Adjusted book.

35

• A. Definitions & Glossary

» Net debt to in-place adjusted EBITDA ratio and Net debt plus preferred equity to in-place adjusted EBITDA ratio –

Net debt (defined above) or Net debt plus preferred equity divided by in-place adjusted EBITDA (defined above) for the three month period that is annualized by multiplying by four.

» Net operating income from real estate operations (“NOI”) – Includes: consolidated real estate revenues; consolidated

property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate JVs that are allocable to COPT’s ownership interest in the JVs.

» Payout ratios based on: Diluted FFO; Diluted FFO, as adjusted for comparability; and Diluted AFFO – These

payout ratios are defined as (1) the sum of dividends on unrestricted common shares and distributions to holders of interests in the Operating Partnership (excluding unvested share-based compensation awards) and dividends on convertible preferred shares when such distributions and dividends are included in Diluted FFO divided by (2) the respective non-GAAP measures on which the payout ratios are based.

» Portfolio:

36

• A. Definitions & Glossary

» Redevelopment – properties previously in operations on which activities to substantially renovate such properties are

underway or approved.

» Regional Office Properties – office properties located in select urban/urban-like submarkets in the Greater

Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics.

» Replacement capital expenditures – Tenant improvements and incentives, building improvements and leasing costs

incurred during the period for operating properties that are not (1) items contemplated prior to the acquisition of a property, (2) improvements associated with the expansion of a building or its improvements, (3) renovations to a building which change the underlying classification of the building (for example, from industrial to office or Class C office to Class B office), (4) capital improvements that represent the addition of something new to the property rather than the replacement of something (for example, the addition of a new heating and air conditioning unit that is not replacing one that was previously there), or (5) replacements of significant components of a building after the building has reached the end of its original useful life. Replacement capital expenditures excludes expenditures of operating properties included in disposition plans during the period that were already sold or are held for future disposition. For cash tenant incentives not due to the tenant for a period exceeding three months past the date on which such incentives were incurred, we recognize such incentives as replacement capital expenditures in the periods such incentives are due to the tenant. Replacement capital expenditures, which is included in the computation of Diluted AFFO, is intended to represent non- transformative capital expenditures of existing properties held for long-term investment.

» Same-Properties – Operating office and data center shell properties stably owned and 100% operational since at least

the beginning of the prior year.

» Same-Properties NOI and Same-Properties cash NOI – NOI, or Cash NOI, from real estate operations of Same-

Properties.

» SCIF – a Sensitive (or Secure) Compartmented Information Facility, or “SCIF,” in U.S. military, security and intelligence

parlance is an enclosed area within a building that is used to process classified information within formal access controlled systems (as established by the Director of National Intelligence).

» Stabilization – generally defined as properties that are at least 90% occupied. » Under development – This term includes properties under, or contractually committed for, development.

37

• B. Reconciliations

Reconciliations of: EPS to FFOPS Guidance EPS to FFOPS per Nareit and as adjusted for comparability (in dollars per share) Low High Low High EPS 0.63 $ 0.65 $ 0.77 $ 0.79 $ Real estate-related depreciation and amortization 0.36 0.36 1.27 1.27 Gain on sales of real estate (0.51) (0.51) (0.51) (0.51) Impairment losses

• 0.01

0.01 FFO allocation to other noncontrolling interest resulting from capital event

• (0.10)

(0.10) FFOPS, Nareit definition 0.48 $ 0.50 $ 1.44 $ 1.46 $ FFO allocation to other noncontrolling interest resulting from capital event

• 0.10

0.10 Loss on interest rate derivatives and early extinguishment of debt 0.04 0.04 0.54 0.54 FFOPS, as adjusted for comparability 0.52 $ 0.54 $ 2.08 $ 2.10 $ Year Ending 12/31/20 Three Months Ending 12/31/20

38

• B. Reconciliations

FFO Reconciliation (Dollars and shares in thousands, except per share data) 3/31/20 6/30/20 9/30/20 Net income (loss) 25,550 $ 25,121 $ (31,342) $ Real estate-related depreciation and amortization 32,596 33,612 35,332 Impairment losses on real estate

• 1,530

Gain on sales of real estate (5)

• Depreciation and amortization on unconsolidated real estate JVs

818 818 819 FFO - per Nareit 58,959 59,551 6,339 Noncontrolling interests - preferred units in the Operating Partnership (77) (77) (77) FFO allocable to other noncontrolling interests (12,015) (1,525) (1,074) Basic FFO allocable to share-based compensation awards (193) (254) (119) Basic FFO available to common share and common unit holders 46,674 57,695 5,069 Dilutive preferred units in the Operating Partnership

• 77
• Redeemable noncontrolling interests

32 37

• Diluted FFO available to common share and common unit holders

46,706 57,809 5,069 Loss on early extinguishment of debt

• 3,237

Loss on interest rate derivatives

• 53,196

Demolition costs on redevelopment and nonrecurring improvements 43 9 11 Dilutive preferred units in the Operating Partnership 77

• 77

FFO allocation to other noncontrolling interests resulting from capital event 11,090

• Diluted FFO comparability adjustments for redeemable noncontrolling interests
• 34

Diluted FFO comparability adjustments allocable to share-based compensation awards (50) (1) (139) Diluted FFO available to common share and common unit holders, as adjusted for comparability 57,866 $ 57,817 $ 61,485 $ Denominator for diluted EPS 111,963 112,121 111,811 Weighted average common units 1,226 1,237 1,240 Redeemable noncontrolling interests 110 157

• Anti-dilutive EPS effect of share-based compensation awards
• 274

Dilutive convertible preferred units

• 176
• Denominator for diluted FFO per share

113,299 113,691 113,325 Dilutive convertible preferred units 176

• 176

Redeemable noncontrolling interests

• 109

Denominator for diluted FFO per share, as adjusted for comparability 113,475 113,691 113,610 Diluted FFO per share 0.41 $ 0.51 $ 0.04 $ Diluted FFO per share, as adjusted for comparability 0.51 $ 0.51 $ 0.54 $ Three Months Ended

39

• B. Reconciliations

EBITDA Reconciliation (Dollars in thousands) 3/31/11 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 9/30/20 Reconciliations of GAAP net (loss) income to adjusted earnings before interest, income taxes, depreciation and amortization ("Adjusted EBITDA"): Net (loss) income (18,566) $ (91,102) $ 19,010 $ 92,672 $ 5,937 $ 62,617 $ 26,255 $ 11,008 $ 18,456 $ 44,877 $ (31,342) $ Interest expense 26,928 24,914 22,782 23,181 23,286 22,347 18,664 19,211 18,475 16,777 17,152 Income tax (benefit) expense (544) (38) 54 1,917 53 46 272 953 (190) (104) 16 Depreciation and amortization 33,645 33,631 29,170 31,817 31,871 36,834 33,441 34,538 36,623 33,217 35,789 Impairment losses on real estate 27,742 78,674 2,140 921 48 19,744 1,554 13,659 2,367 2 1,530 Gain on sales of real estate (2,701) (3,362) 8 (9,004) (41) (64,047) (6,885) (4,452) (2,367) (20,761)

• Adjustments from unconsolidated real estate joint ventures
• 830

829 832 1,206 1,274 Loss (gain) on early extinguishment of debt

• 3

6 (67,808) 9,106 402 1,073

• 258
• 3,237

Loss on interest rate derivatives

• 29,805
• 53,196

Net (gain) loss on other investments (538) (771) (2,992) 221 (74) 6 (117)

• (449)

(1) 250 Credit loss recoveries

• (1,465)

Business development expenses 465 1,064 654 644 669 1,512 1,167 1,116 661 512 414 EBITDA from properties to be conveyed to extinguish debt in default

• (828)
• Demolition costs on redevelopment and nonrecurring improvements
• 225
• 163

104 11 Executive transition costs

• 1,056
• 431
• 371
• Operating property acquisition costs

23 4

• 32
• Non-comparable professional and legal expenses
• 195
• Adjusted EBITDA

66,454 $ 72,822 $ 70,832 $ 74,561 $ 71,083 $ 79,718 $ 76,685 $ 76,862 $ 75,200 $ 76,024 $ 80,062 $ Proforma net operating income adjustment for property changes within period 562 (546)

• (5,107)
• (1,738)

39 (578) 2,052 463 1,631 Change in collectability of deferred rental revenue

• 928

224 In-place adjusted EBITDA 67,016 $ 72,276 $ 70,832 $ 69,454 $ 71,083 $ 77,980 $ 76,724 $ 76,284 $ 77,252 $ 77,415 $ 81,917 $ Annualized in-place adjusted EBITDA 268,064 $ 289,104 $ 283,328 $ 277,816 $ 284,332 $ 311,920 $ 306,896 $ 305,136 $ 309,008 $ 309,660 $ 327,668 $ 3/31/11 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 9/30/20 Gross debt 2,412,821 2,438,471 2,027,792 1,935,718 1,929,810 2,097,230 $ 1,950,229 $ 1,872,167 $ 1,868,504 $ 1,893,057 $ 2,247,523 $ Less: Cash and cash equivalents (12,606) (5,559) (10,594) (54,373) (6,077) (60,310) (209,863) (12,261) (8,066) (14,733) (11,458) Less: Debt in default to be extinguished via conveyance of properties

• (150,000)
• Less: COPT's share of cash of unconsolidated real estate JVs
• (283)

(371) (293) (498) (538) Net debt 2,400,215 $ 2,432,912 $ 2,017,198 $ 1,881,345 $ 1,773,733 $ 2,036,920 $ 1,740,083 $ 1,859,535 $ 1,860,145 $ 1,877,826 $ 2,235,527 $ Preferred equity 225,133 225,133 342,633 257,883 207,883 207,883 207,883 8,800 8,800 8,800 8,800 Net debt plus preferred equity 2,625,348 $ 2,658,045 $ 2,359,831 $ 2,139,228 $ 1,981,616 $ 2,244,803 $ 1,947,966 $ 1,868,335 $ 1,868,945 $ 1,886,626 $ 2,244,327 $ Net debt to in-place adjusted EBITDA ratio 9.0x 8.4x 7.1x 6.8x 6.2x 6.5x 5.7x 6.1x 6.0x 6.1x 6.8x Net debt plus preferred equity to in-place adjusted EBITDA ratio 9.8x 9.2x 8.3x 7.7x 7.0x 7.2x 6.3x 6.1x 6.0x 6.1x 6.8x As of Three Months Ended

CORPORATE OFFICE PROPERTIES TRUST

6711 Columbia Gateway Drive, Suite 300, Columbia, Maryland 21046 443.285.5400 / www.copt.com / NYSE: OFC